S&P: EU Bonds Way Riskier Than 2007-Vintage Securitizations

Unlike mortgage-backed securities, supranational political entities simply cannot have this many sub-prime components and expect to keep its triple-A rating, according to S&P’s flawless debt-rating system.

Credit-ratings firm Standard & Poor’s cut the outlook for the European Union’s debt on Friday, warning of a decline in the creditworthiness of the bloc’s 28 member states and of increasingly acrimonious talks over a common budget.

The move comes just weeks after S&P stripped the Netherlands of its coveted triple-A credit rating, and cut France’s rating for a second time in two years.

“We believe the financial profile of the EU has deteriorated, and that cohesion among EU members has lessened,” S&P said in a statement as it downgraded the bloc’s rating to double-A-plus from triple-A.

Standard & Poor’s raised Mexico’s credit rating Thursday on expectations that the recent passage of a bill to allow private investment in the state-run energy sector will increase the country’s growth over time.

The ratings firm raised Mexico’s investment-grade sovereign rating to triple-B-plus from triple-B, bringing it in line with the ratings of Moody’s Investors Service and Fitch Ratings. S&P had lowered Mexico’s rating one notch during the 2009 recession.

Should all of this be making it hard for you to find top-rated debt for your loved ones’ stockings, take heart: The folks in Basel are working hard to ensure that there will be plenty of new securitizations that people can pay S&P to give a triple-A rating by next holiday season.

The European Central Bank, the Bank of England and the EU’s European Commission have called for action to revive securitization to encourage long-term investments, but using stricter standards….

The Bank is considering how it could intervene to kick-start the market.

The Basel Committee of banking supervisors from nearly 30 countries published revised draft rules on securitization on Thursday that included more flexibility.

In the original draft, it proposed a minimum risk weighting of 20 percent for securitized products but in its latest paper it now proposes a minimum of 15 percent, meaning banks would have to set aside less capital against the products.

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